Will US-China trade war ruin Africa or offer new opportunities? National leaders must decide

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Stephen Chan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

This trade war should not be seen in isolation, and the new year will bring a changed world. China and Russia will cooperate as the new Silk Road begins to join Asia and Europe with a transport and communications corridor Marco Polo could not even imagine.

Russia, Turkey and Iran – once unlikely partners in the Syrian conflict – will form a new Middle East axis to rival that of the US, Israel and Saudi Arabia, with none of the latent instabilities of the latter with its Zionist and Islamic ingredients.

And the US, under Donald Trump, is likely to continue to view Africa – in all but name – as that collection of “shit hole” countries derided by the American president at his undiplomatic, offensive and unthinking worst.

After two years without one, the US will have a permanent assistant secretary of state for Africa – the highest State Department official with an Africa portfolio. Tibor Nagy also comes with a sound reputation as a seasoned diplomat. But will he have any clout on Capitol Hill? And can any official be effective in a State Department that Trump and the former US secretary of state, Rex Tillerson, have slashed and burned?

May’s dancing and used clothes

If the US doesn’t care much for Africa, neither really does the UK. Theresa May’s dismal efforts at dancing on her Africa tour summed up a clumsy view of what the continent needs.

The UK posture is summed up by the position of minister of state for Africa – now held by Harriet Baldwin – with responsibilities in two departments: the Foreign Office and International Development. These are two very different departments and the joint position is both a money-saving device – two ministers for the price of one – and also a confusion of policy as to how the UK should approach Africa. Indeed, perhaps the beleaguered minister’s main responsibility is the search for new UK trading partners in the wake of Brexit.

The US approach to Africa, meanwhile, was summed up in measures launched between May and September 2018: basically, the suspension by the US of trade benefits to Rwanda because of Rwanda’s refusal to import used clothes from the US. In continental terms, the sums are tiny, but the principle enunciated by Rwandan president, Paul Kagame, was stark.

If the volume of used clothes continues or increases, there can be no development of a Rwandan textile industry. In effect, the US is dumping textiles on Rwanda in much the same way as it once dumped grain so cheaply that African farmers could not even begin to compete and agriculture could not develop. For Trump, in his trade wars not just with China but with the world, blue collar manufacturing in his heartland is more important than good relations with anyone.

For a populist president this is dangerous but perhaps understandable. But who has drawn first blood in this US-China standoff? Chinese economic growth has slowed – but only to 6.5% a year, a growth figure for which most other countries would die. The value of the Chinese yuan against the dollar seems destined to fall, but Chinese reserves, divided almost equally between foreign and domestic reserves, of about US$60-$70 trillion, are more than enough to weather the storms to come. Added to what the Chinese did during the US financial crisis of 2007 to 2010 – buying up huge quantities of US toxic debt – China has far more leverage on the US economy than the US has on China’s.

China and Africa

For Africa, it means business with China remains a reality. This relationship has, however, taken on two key new characteristics of late. The first is that China expects its loans to be repaid. Indeed, there is no doubt that a new fiscal propriety is now expected by the Chinese.

The second, very closely connected development – and one which curiously seems not to have been noticed or taken seriously by African leaders – is that increasingly Chinese liquidity is made available not on a state-to-state basis but on a Chinese bank to African state basis.

They may be Chinese state banks – but a bank is a bank, and a bank needs to ensure its loans are repaid and its lending to assets ratio is robust. The use of banks reflects a global Chinese turn to the creation of international and regional banks and funds, most noticeable in Asia-Pacific. The Chinese capitalise these regional funds to the tune of about US$50 billion a time. But this means the beginning of a new Chinese global financial infrastructure that seems deliberately designed to rival the IMF and the World Bank. It’s not just a trade war but a war over who will control the world’s financial flows in the long term.

For Africa, the choice is between growth with borrowed liquidity and growth without – the latter being very difficult. Investment doesn’t come out of nothing, so wise spending of borrowed liquidity is key. It cannot be just for standby budgetary support without product and without exportable value – which is why the Chinese turned down Zimbabwe’s desperate pleas for exactly that.

An uncertain future

The future will embroil Africa even more in the trade wars to come. What Africa needs to do is to industrialise – to add manufacturing to its raw materials. The long awaited oil refinery in Nigeria is the perfect example. How a significant oil-producing country could spend so many years exporting crude and then reimporting it as a refined product beggars description. The revenue streams would have always been greater if it had been exported refined.

Trouble is, African industry will create jobs in Africa but take away blue collar jobs elsewhere. And the West won’t like that.

But what about China? African governments must navigate the attractions of the quick fix via Chinese loans, and seek the development of long term industrial capacity. Or will the next decade be another of missed opportunities – with trade wars steamrollering an Africa whose response will be to plunge again deeper and deeper into debt?